Interchange fees and incentives to invest in payment card systems

Marianne Verdier

International Journal of Industrial Organization, 2010, vol. 28, issue 5, 539-554

Abstract: Interchange fees are interbank transfers that are used by payment platforms to allocate the total cost of a payment card transaction between the cardholder's bank (the Issuer) and the merchant's bank (the Acquirer). Each time a consumer pays by card, the Issuer of the card pays an interchange fee to the Acquirer of the transaction. In this paper, I study how banks' investments in payment card systems impact the privately and the socially optimal interchange fees. I show that if the Acquirer's contribution to investments is high, and if the consumers benefit more than the merchants from investments, the payment platform may decide to lower the interchange fee so as to encourage banks' investments in quality.

Keywords: Payment; card; systems; Interchange; fees; Two-sided; markets; Investments; in; quality (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-7187(10)00017-2
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:28:y:2010:i:5:p:539-554

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().